Where did all the great savings accounts go?
Half of easy access savings accounts now pay interest of 0.5% or less, while more than 22% pay under 0.1%.
Despite the Bank of England base rate remaining stable at 0.5% since March, around one in 10 savings accounts have had their rates cut, according to data provider Moneyfacts.
“Once again it is savers, such as pensioners, who rely on the income from their savings to supplement their income, who end up worse off,” says Michelle Slade, spokeswoman for Moneyfiacts.
New rules introduced on 1 November mean banks and societies will have to give savings customers at least two months’ notice of any disadvantagous interest rate changes. Slade believes that many savings providers pre-empted this change - in October alone, at least eight banks and building societies reduced returns on their variable-rate savings accounts.
Culprits include Halifax, Leeds Building Society and Yorkshire Bank, which reduced rates by nearly a full percentage point.
By contrast, just 3.5% of accounts have seen rates increase.
The problem of low savings rates is particularly prevalent among retirees, six million of whom are dependent on savings for up to 20% of their total annual income, according to Investec Private Bank.
“Many retired savers were expecting to supplement their pensions with income from cash savings but instead are now receiving derisory rates of return once the high introductory rates and bonuses have expired,” says Linda McBain, head of banking at Investec.
She believes that a quarter of older savers don’t know what their current rate of interest is.
Accounts with introductory bonus rates now make up 21% of the savings market, according to comparison service MoneyExpert.com. Introductory rates are tempting for many savers, as they can boost overall returns quite considerably but they are also pose a problem for savers who fail to move their money into a new deal.
It is possible to find short-term bonus rates of 0.9%, which beats the average rate of 0.7% paid on instant access accounts.
Pierre Williams, head of research at MoneyExpert.com, says: “Beggars can’t be choosers and given the low rates nowadays savers are effectively beggars when average rates are just 0.7%.
"Bonuses are no bad thing and given the state of the market savers may just have to play ball. Constantly moving account, though, may be getting very dull for those who simply want a steady return and access to their money.”
Best instant access deals
3.34% (including 0.6%
bonus until 31/10/10)
|Only two withdrawals a year|
for 12 months)
2.65% bonus for
Telephone access only
|ING Direct||£1||3.2% for 12 months||Unlimited withdrawals|
|Sainsbury's Bank||£1,000||3.2% for 12 months||Only three withdrawals|
|Leeds Building Society||£100||
3.05% (including 1%
bonus for 12 months)
|Scottish Widows Bank||£1||
3.01% (including 1%
bonus for 12 months)
|Alliance & Leicester||£1,000||
3% (including 1.5%
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
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